Have to include premises to sell your business GST free?

If you are selling your professional practice or firm (such as a financial planner,  insurance broker, mortgage broker, accountant or bookkeeper or anyone else) a question that may come up is whether you need to include your premises in the sale for the sale to be a GST Free Going Concern sale.

The answer of course is that it depends whether the premises is necessary to be included in the business sale.

The basic answer is that under paragraph 92 (copied below) of GST Ruling 2002/5

Because the GST ruling that deals with this was written in 2002 – the main example they give (below) is a Tarot card phone service operator.

However now a lot of businesses are portable and don’t require a premises – so a lot more businesses could be sold GST free (assuming that the premises is the one thing that is holding up the “all items necessary for continued operation of the business” status that allows the GST free sale).

Next steps if you are unsure are likely to be taken by your accountant

1. A call to the ATO to discuss the facts of the case

Sometimes they are able to give an over the phone answer that shows that they are satisfied with your/your accountants approach that the business be classed as a GST free sale.

2. A Private Ruling

Requesting a private ruling allows the ATO to review your personal circumstances and make an opinion as to an issue.

The problem is that this can be an expensive and lengthy process (and may hold up the business sale).

It is possible to amend a BAS at least 2 years (and usually 4 years) from when it is lodged.

So it is possible to act in good faith that the GST free sale conditions are met – and lodge the BAS on that basis.

A cleverly drafted legal agreement may allow the seller to charge the 10% retrospectively to the purchaser and have amendments occur on the seller end (to charge the GST) and on the purchasers end (to claim the GST). As you can see – this is a nil sum game for the ATO (they receive $x from Peter and pay $x to Paul) – so I believe that they are less concerned about the GST free sale status and may be more willing to allow it.

And also be less likely to audit it if you have done it in good faith and followed the guidelines of the GST free sale and GST ruling 2002/5

https://www.ato.gov.au/Business/GST/In-detail/Your-industry/Property/GST-and-commercial-property/?page=5

The ATO go into a lot more detail in this link in GST Ruling 2002/5

https://www.ato.gov.au/law/view.htm?docid=GST/GSTR20025/NAT/ATO/00001

Except from the Ruling:

91. Where an enterprise is necessarily conducted from premises, but particular premises are not necessary, then suitable premises, or the right to occupy such premises, must be supplied as one of the things that are necessary for the continued operation of the enterprise. Where premises are necessary for the continued conduct of the enterprise and premises are not supplied by the supplier because the recipient has, or is able to secure, suitable premises prior to the day of the supply, the supplier is not supplying a thing which is necessary for the continued operation of an enterprise.

92. In limited circumstances, an enterprise may not need to operate from premises and therefore premises are not one of the things necessary for the continued operation of that enterprise. This is the case where an enterprise requires few tangible assets, for example, a personal fitness trainer who visits clients and does not need any premises to operate the enterprise.

Example 12: premises that are not necessary

93. Betty is a clairvoyant who works from home. Betty provides tarot readings over the telephone using a 0055 number. Betty sells her business including her cards, the files on her regular clients, her advertising material, her trading name ‘Madame Ecarte’ and the 0055 number to Bruce. She is not required to supply her home as a part of the ‘supply of a going concern’. Premises are not an essential part of her enterprise.

About Scott Kay

Integrity Plus Accounting

Scott Kay is currently a husband and father of one young daughter. He founded Integrity Plus Accounting over 4 years ago and has had his own clients for over 10 years. He has worked for 3 other accounting businesses and loves to help clients grow – in their business, their wealth, their mindset and their lives.